I just can't understand why so many people are letting fiscal policymakers off the hook. It's not for lack of time or space -- a considerable amount is written daily about the Fed. We ought to be skewering both politicians and economists who are standing in the way of fiscal policy measures, infrastructure in particular, that could strengthen the economy and put people back to work -- both theory and the empirical evidence are clear on this point -- but instead it's mostly silence. ... Yes. it's politically unlikely that a fiscal policy package could get through Congress, but that doesn't mean we should give up our role in educating the public about just how terrible the performance of fiscal policy has been. And if we speak out, perhaps it could even matter at the margin...
It's nice to see this from Paul Krugman:
Years of Tragic Waste, by Paul Krugman, Commentary, NY Times: In a few days, we’ll reach the fifth anniversary of the fall of Lehman Brothers — the moment when a recession, which was bad enough, turned into something much scarier. Suddenly, we were looking at the real possibility of economic catastrophe.
And the catastrophe came.
Wait, you say, what catastrophe? Weren’t people warning about a second Great Depression? And that didn’t happen, did it? ... The important thing, however, is to realize that ... you can have an immense failure of economic policy that falls short of producing total collapse. And the failure of policy these past five years has, in fact, been immense. ...
Set aside the politics for a moment, and ask what the past five years would have looked like if the U.S. government had actually been able and willing to do what textbook macroeconomics says it should have done... I’ve done a back-of-the-envelope calculation ... It would have been about three times as big as the stimulus we actually got, and would have been much more focused on spending rather than tax cuts.
Would such a policy have worked? All the evidence of the past five years says yes. ... Government spending on job creation would, indeed, have created jobs.
But wouldn’t the kind of spending program I’m suggesting have meant more debt? Yes... But ... the ratio of debt to G.D.P. ... would have been only a few points higher. Does anyone seriously think that this difference would have provoked a fiscal crisis?
And, on the other side of the ledger, we would be a richer nation, with a brighter future...
Look, I know that as a political matter an adequate job-creation program was never a real possibility. And it’s not just the politicians who fell short: Many economists, instead of pointing the way toward a solution of the jobs crisis, became part of the problem, fueling exaggerated fears of inflation and debt.
Still, I think it’s important to realize how badly policy failed and continues to fail. Right now, Washington seems divided between Republicans who denounce any kind of government action — who insist that all the policies and programs that mitigated the crisis actually made it worse — and Obama loyalists who insist that they did a great job because the world didn’t totally melt down.
Obviously, the Obama people are less wrong than the Republicans. But, by any objective standard, U.S. economic policy since Lehman has been an astonishing, horrifying failure.